Commentary on the interrelationships of the political, economic, and social spheres.

Friday, September 6, 2013

Greed vs. Self-Interest

I’m still reading Poverty
of Nations. (I wrote about it Monday and Wednesday.) I hadn’t intended to
write multiple posts on it, but some basic concepts keep coming up worth
thinking about. No promises that there won’t be more posts on this book. There’s still a lot of book to finish reading.

The other day I read a section on self-interest that
helpfully identifies the difference between greed and self-interest. This is
helpful because the detractors of free enterprise often talk about greedy
capitalists, out only for their own interests. So we could use some clarity.

Self-interest is
seeing that you take care of yourself and your needs. Greed is wanting more than your just deserts. We need self-interest.
We try to root out greed within ourselves, because it is harmful to our own
souls, and tends to harm others as well.

The book quotes from Jay W. Richards’ book Money Greed, and God,[1]
which lists a number of things you do out of self-interest:

·Breathing

·Washing your hands

·Eating more fiber

·Taking your vitamins

·Clocking in at work

·Looking both ways before crossing the street

·Going to bed

·Taking a shower

·Paying bills

·Going to the doctor

·Hunting for bargains

·Reading a book

·Praying for God’s forgiveness

I’m sure there’s more: getting a good education, putting on
a sweater, going to the gym, teaching good manners to children, celebrating
your birthday, taking a vacation, doing a raise-worthy job at work, learning to
play a musical instrument. The list will go on much longer if we include things
that we do for others because the giving makes us feel good: donating used
clothes, coaching a youth sports team, reading bedtime stories to your
children, teaching Sunday School, shoveling your elderly neighbor’s driveway,
helping a friend fix his car, donate to a favorite charity, volunteer time at a
charity.

learning early to make some good
self-interested purchases

Do any of these things get done out of greed? If you didn’t take
enough interest in yourself to do them, would your life be better off or worse?
If you gave up taking a shower because you thought you would be a better person
by denying yourself that bit of self-interest, neither you nor the people who
have to be around you would be better off.

If you give up eating enough fiber, taking your vitamins,
going to the gym, and brushing your teeth, simply because you believed it was
selfish to take care of yourself, and then your resulting bad health leads you
to need a doctor, do you deny yourself that too, because it would be selfish?
Truly all the people in your world appreciate your taking care of yourself as
well as you can. Think of them.

But what about in a sales transaction? Is a merchant greedy
for asking his price? The book quotes Adam Smith, from The Wealth of Nations: “It is not from the benevolence of the butcher,
the brewer, or the baker that we expect our dinner, but from their regard to
their own interest.”[2]

Just for amusement, let’s take a look at such a transaction,
with a butcher who lacks self-interest. First of all, the butcher probably
wouldn’t have sought a means of making a living if he had no self-interest. So
he probably wouldn’t have invested the time and capital necessary to open a
butcher shop. But say that was placed into his hands and he ran the business as
a favor to someone. He would have to buy the livestock to butcher. Without
self-interest, he wouldn’t be interested in getting the best livestock for the
best price; he would be thinking it less self-interested to take an inferior
animal off the rancher’s hands and pay a premium price for it. The next step
for him is to offer inferior meat to you, the buyer. Then he can either charge
you a high enough price that he can make a bad deal for another inferior animal
another day to sell to you (quickly losing you as a repeat customer), or he can
ask only enough that he can afford only an even lesser animal. In other words,
he quickly goes out of business and offers you nothing to buy. Do you really
want to be dealing with a butcher with no self-interest?

Suppose you’re selling a house. Do you look for the most
deserving buyer, who may not be able to afford your price, and then drop your
price to, say,25% below what he can offer? If you do, what is the likelihood
you can then go ahead and buy your next home? (Wouldn’t the buyer be greedy if
he accepted such an offer?) Do you benefit from feeling guilty of greed if you
stick to your asking price so that you can buy your next home? I think both you
and the buyer are better satisfied with the deal if you both believe you
benefit from the exchange. Satisfaction for both, regret and resentment for
neither.

Now we get to the even more interesting thing about actual greed
in a free market: the free market still works. Here is what Grudem says in Poverty of Nations:

Greed cannot be prevented by human laws, since it is an
internal attitude. It can be reduced only with a change of heart coming from
inside a person.

When greed manifests itself through violations of the rights
of others, a free-market system is most likely to limit its harmful effects
through the reactions of consumers (who will soon refuse to buy from a merchant
they perceive to be greedy) and through the protections provided by the rule of
law and legal protections of others’ rights.

Has any economic system ever eliminated greed from every person in a society? No. So what shall
we do? Why not favor a system that utilizes
people’s healthy self-interest and even their sinful greed in a socially
beneficial way by rewarding those who best serve the needs of others? That is
what a free-market system does” [Kindle location 4065-4080].

One of the basic characteristics of a free market is that
two people make a trade that makes both of them better off. If either of them
isn’t satisfied with the deal, they don’t have to make it; they can keep their
money or their commodity and wait for a more agreeable arrangement. Both take
care of their own self-interest and trust in the self-interest of the other. And
that’s a good thing.